Sorry Mr. Jevons, your energy efficiency paradox really isn’t

We hear all the time about the virtues of buying more energy-efficient light bulbs, appliances, homes, and vehicles. By using less energy, such things save us money, take stress off the power grid, and help us reduce our consumption of fossil fuels.

But there are some who question whether energy efficiency is everything it’s touted to be. Specifically, they point to the idea that there is a large rebound effect to increased energy efficiency. The concept here is that when we use products that consume less energy, we end up using more of the product or using more products – or both.

When we buy a more energy-efficient car, we drive more. When we install more efficient light bulbs, we’re more inclined to leave the lights on longer. If the end result is that gains in energy efficiency are offset by increased energy use, then what’s the point?

This dilemma was first explored in 1885 by British economist William Stanley Jevons, which is why the rebound effect is often referred to as the Jevons paradox. These days, critics with mostly libertarian leanings cite it as a reason to discontinue “ineffective” government-funded energy efficiency programs.

The Washington-based Institute for Energy Research, which has reportedly received funding from the likes of Koch Industries and ExxonMobil, made that argument last month in a 43-page report.

“The pervasiveness of energy efficiency rebounds illustrates that attempts to plan or direct energy policy toward desired goals will likely fall short of expectations,” it asserted. “Instead of imposing energy efficiency mandates, energy policy should embrace market prices and disruptive innovations to guide energy to its most valuable uses.”

In other words, policies attempting to phase out inefficient lighting products? Bad. Mandating fuel-efficiency standards for vehicles? Ineffective government meddling. Make power plants cleaner and more efficient? Let the market decide.

The research institute’s study rightly ruffled the feathers of the American Council for an Energy-Efficient Economy, which this week tried to set the record straight: Claims of 100 per cent rebound, it said, “do not stand up to scrutiny.”

Direct rebounds include the example of driving a more efficient car more often, ultimately using up any potential fuel savings. An indirect rebound occurs when money pocketed through energy-efficiency savings is spent on something else, such as a big-screen TV, which ends up consuming more energy – both through its production and everyday operation.

The council didn’t dispute that such rebounds exist, and that they vary depending on the product or action. But it concluded that critics of energy-efficiency programs were grossly exaggerating the size of the rebounds. It found that direct rebounds were generally 10 per cent or less, and indirect rebounds – while “less well understood” – were estimated at 11 per cent.

“Even if total rebound is about 20 per cent, then 80 per cent of the savings from energy efficiency programs and policies register in terms of reduced energy use,” it said. “And the 20 per cent rebound contributes to increased consumer amenities and a larger economy. These savings are not ‘lost’ but are put to other generally beneficial uses.”

On top of this, it would stand to reason that the rebound effect would be smaller in an environment of rising energy prices. Indeed, higher gasoline prices are driving many people to purchase more energy-efficient vehicles.

In this sense, efficiency is being embraced as a way to cope with energy inflation; a way to maintain current levels of consumption, not drive more of it. If gas prices never changed, it might be a different story, but most people just want to be able to drive back and forth to work and keep their gas bill manageable.

Former CIBC chief economist Jeff Rubin has argued that the genesis of the economic crisis we’re currently in has to do with high oil prices, and that reality of rising energy costs will make it difficult for countries – such as the economic basket cases in the eurozone – to achieve the kind of growth they need to recover.

Along this line of thinking, it would seem that greater energy efficiency – with one measure being energy consumption per unit of GDP, or “energy productivity”—represents one way for countries to cope with rising oil prices and achieve the kind of growth that can help whittle down debt and balance budgets.

Greater energy efficiency, in this respect, could play a large role in lifting us out of our global economic doldrums.

The paradox is not really about energy efficiency. It is about labour efficiency. More efficient energy enables labour to becomel more efficient. The more efficient labour is, the more the economy is able and needs to grow. If it does not you have a surplus in labour and a recession. Here is a film explaining the link http://www.workersoftheworldrelax.org. It has 3 parts. The last part makes the link a little clearer.

“Instead of imposing energy efficiency mandates, energy policy should embrace market prices and disruptive innovations to guide energy to its most valuable uses.” I can only assume from this quote that the Koch-funded authors feel that incorporating external costs associated with climate change and pollution into the cost of fossil fuels is a more efficient means of promoting efficiency and avoiding the rebound effect than regulating products. Right?

While I consider Tyler Hamilton to be completely out to lunch on his naive and foolish political nonsense,
he is correct about the so-called Jevons paradox. The paradox does not take in account the tremendous advances in technology that can easily outpace demand in the blink of an eye.
Between 1939 and 1946 for example, the world gained a breathtaking array of new technologies in a very short time span.

Tyler, thank you for this insightful article. The report released by the American Council for an Energy-Efficient Economy appears to be a much more realistic assessment of the current situation. As critics of energy-efficiency programs continue to essentially grasp at straws, the ACEEE compiled a thorough report, which found total rebounds (both direct and indirect combined) to be approximately 20%. Based on this data, that would mean that 80% of the savings would result in that respective percentage of reduced energy usage. As you pointed out, this certainly would not constitute a paradox. It’s great to know that we have organizations out there like the ACEEE and authors like yourself who are not afraid to call it as they see it. Despite the opposition’s bold claims, fuel efficient vehicles and energy efficient home improvements (such as replacement windows, insulation, etc.) clearly provide a great return on investment. What people do with the money they save through energy-efficiency is ultimately their decision, but the suggestion of a 100% rebound is absolutely ludicrous. Thanks again for exposing the truth in this well-written post!